Universal routs MP3.com in court for $118m

Blood in the water

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As expected, US District Judge Jed Rakoff ruled against MP3.com in New York Wednesday finding that the Web music-sharing service "wilfully violated" the copyrights of record companies with its MyMP3 service, which enabled customers to access MP3 files via the Net for any piece of music they owned.

Judge Rakoff ordered the company to pay Universal Music US $25,000 per CD in their collection, for a total of roughly $118 million. The judge said it was necessary to make an example of the case to inhibit further copyright infringement via the Internet.

The court could have awarded as much as $150,000 per CD, but chose a more modest sum to punish, rather than ruin, MP3.com.

Universal had hoped for a ruling in the neighbourhood of US $450 million to deter others from messing with their copyrights. "The next infringement may be very different," Universal lawyer Hadrian Katz declared. "It may be video or it may be film or it may be books or it may be something very different."

MP3.com lawyer Michael Rhodes urged Judge Rakoff to impose a modest penalty rather than one "in the Draconian range of $400 million, an award that could never be satisfied and would end up being the largest paper award in history".

Four other record companies settled after Rakoff ruled that the company had indeed violated copyrights. The amounts were not revealed, but the company has set aside $150 million to cover its legal costs. Only Universal, the world's largest music company, refused to settle and sought its day in court.

Roughly half of the CDs in MP3.com's collection may not be covered by the deals, so the lucrative ruling in favour of Universal could initiate a second wave of lawsuits against MP3.com.

MP3.com has vowed to appeal.

Trading of MP3.com shares was halted before the decision. The latest trade was at $7.88 per share, down 69 cents on the NASDAQ. Tomorrow's trading will reveal how badly the company has been damaged in the eyes of investors. ®